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IMF slashes PHL growth outlook anew

A recent wave of new coronavirus infections likely slowed the Philippine economy’s recovery this year. — PHILIPPINE STAR/ MICHAEL VARCAS

By Luz Wendy T. Noble, Reporter

THE International Monetary Fund (IMF) sharply cut its growth projection for the Philippines this year, after a fresh wave of coronavirus disease 2019 (COVID-19) infections slowed the economy’s recovery.

Thomas Helbling, division chief of IMF’s Asia Pacific Department, said the Philippine economy is now forecast to grow by 5.4% this year, lower than its previous 6.9% projection, after the reimposition of tighter lockdown measures in Metro Manila and nearby provinces in late March.

The multilateral lender’s new gross domestic product (GDP) growth projection is also less optimistic than the 6-7% target set by the government for this year.

“The slowing in the recovery in the first half is mostly due to the second wave of the pandemic which peaked in April and necessitated some stricter quarantine measures and has also weighed on confidence. But now, hopefully, the second wave should be on the way out,” Mr. Helbling said at a virtual briefing where he discussed the preliminary findings of the IMF’s 2021 Article IV consultation mission that concluded earlier this month.

Restrictions have gradually been eased in the Philippine capital and adjacent provinces as the number of new COVID-19 cases has declined from the peak.

“The economy is recovering gradually as quarantine measures are eased. The recovery that began in the third quarter of 2020 should gain momentum,” Mr. Helbling said, citing the easing of quarantine measures, the vaccination campaign and macroeconomic policy support.

However, downside risks to the growth outlook include the possible resurgence of COVID-19 cases, and delays in the vaccination rollout due to lack of supply, he said.

“Risks of the virus resurgence will remain high until a sufficiently high proportion of the population is vaccinated,” Mr. Helbling said.

The Health department reported 5,414 new COVID-19 infections on Wednesday, bringing the number of active cases to 56,170. However, a spike in new cases has been reported in provinces.

Government data showed the Philippines had administered two doses of COVID-19 vaccines to 1.88 million people as of June 13. The government is targeting to inoculate 70 million Filipinos against COVID-19 this year.

REBOUND IN 2022
For 2022, the IMF raised its GDP forecast to 7% from the previous projection of 6.5%.

“The core of the forecast is that the health situation improves which will allow for economic reopening and also build confidence…. More businesses will increase activity, there will eventually be more investments including from the government side as restrictions are lifted, then you will have the multiplier effect,” Mr. Helbling said.

The IMF official said monetary policy should remain accommodative for the recovery to take hold.

“While the recent spikes in inflation should be closely monitored, the present monetary policy setting is appropriate as the current inflation pressure appears to be temporary and is likely to taper off in the second half of the year,” he said.

The IMF expects inflation to reach 4.2% this year, beyond the 2-4% target and the 3.9% forecast of the Bangko Sentral ng Pilipinas (BSP). Headline inflation is expected to ease to 3% by 2022.

Mr. Helbling said the government should utilize its fiscal space to support the needs of vulnerable groups affected by the lockdown, as well as to strengthen the healthcare sector.

“Priorities would still be to provide support to vulnerable households, and businesses hard hit. And then of course, really center of fiscal support should be the healthcare sector including the vaccination,” he said.

Mr. Helbling said the government’s infrastructure push will also be essential to recovery, as it will create much-needed jobs.

REFORMS
While the country has made “important progress” in terms of tax reform, digital payments, cutting red tape, and climate mitigation and adaptation, the IMF said more reforms are needed to ensure the country can reinvigorate the investment climate and return to pre-pandemic growth rates.

“Sustained efforts will be needed to reduce restrictions on foreign investment, fast-track the rollout of the national ID, scale up social protection, strengthen healthcare and education, and implement climate change commitments,” Mr. Helbling said.

The proposals to amend the Public Service Act (PSA), the Foreign Investments Act of 1991 (FIA), and the Retail Trade Liberalization Act of 2020 (RTLA) have been certified as urgent by President Rodrigo R. Duterte.

The amendments to the PSA and the FIA are pending in the Senate, while a Bicameral Conference Committee will still hammer out the final version of the RTLA amendments.

“We’re working with the legislature through the LEDAC (Legislative- Executive Development Advisory Council) on those priorities,” Finance Secretary Carlos G. Dominguez III said in a Viber message to reporters.

Senator Vicente C. Sotto III in a WhatsApp message said the discussions on the RTLA is already “in advance stages” and “will [be] passed upon resumption [of the session].”

Congress will resume session on July 26.

The IMF also warned the country should continue to strengthen its regulations against money laundering and terrorism financing to avoid being “gray listed” by the Financial Action Task Force.

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